Interested in online trading? Investing in market assets is a great way to grow your wealth and make a profit. However, getting started in trading is not always easy. Before you begin, it is best to master the key concepts, such as spread betting for beginners. If you master this method, you have a good chance of succeeding in the markets. To help you, we give you all the information you need: the spread betting definition, how it works and tips for succeeding with this form of investing.
What Is Spread Betting?
Before you get started, you first need to understand what it involves. Literally, spread betting means betting on the spread. As a reminder, the spread is the difference between the bid price and the ask price of a share.
So spread betting means betting on the price of a share. It is purely speculation: you do not actually own the underlying asset. You simply predict its movements, saying whether the asset’s price will rise or fall. Put simply, spread betting means wagering on the price movements of a listed asset.
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Types of Spread Betting for Beginners
There are several categories of financial spread betting, depending on the asset:
- Forex spread betting: betting on price movements in fiat currency pairs such as EUR/USD, GBP/JPY and others.
- Index spread betting: here you bet on the prices of instruments such as the S&P 500, CAC 40 and FTSE 100.
- Commodity spread betting: speculating on assets such as cocoa, gold, coffee, oil and many others.
- Interest rate spread betting
That is an overview of the different assets you can take positions on by betting on the financial markets.
How Does Spread Betting Work?
Overall, spread betting is a rather unusual way to invest, but the principle is fairly simple. As we saw in the definition, the investor simply bets on the future price of a market product. The bet takes effect when you confirm your position.
When you spread bet on financial markets, you can choose between two positions. You can be a bullish investor, betting that a product’s price will rise. Otherwise, if you bet on an asset falling, you are a bearish investor.
To understand how spread betting works, let’s take a concrete example:
Imagine you are a bearish investor and there is an asset called TF (this is entirely fictional and only used to explain the concept). TF’s market price is $301.50. A spread betting firm sets the buy/sell price of this product at $300/$303. As you are bearish, you think the underlying asset’s price will fall. You decide to bet $80 per point that TF’s price falls below $300. Suppose TF’s buy/sell price drops to $285/$288. In this case, you end up with a profit calculated as follows: {($300 – $288) * $80 = $960}.
However, if the price rises to $312/$315, the result will be: {($300 – $315) * $80 = -$1,200}.
That, in short, is how spread betting works. We suggest thinking carefully before placing such bets. As you have just seen, you can win big in a single trade, but you can also lose.
What Makes Spread Betting Different?
As we have seen throughout this guide, betting on price movements is a rather particular form of investing. To pin down what makes it unique, we compared it with direct trading. Here are the results of our analysis:
- Spread betting vs CFD trading: these two concepts are similar in many ways, as both are margin products. The main difference is tax: spread betting is not subject to capital gains tax, unlike CFDs. Spread betting is only available in a few countries, such as the UK and Ireland, whereas CFDs are available in France and worldwide. Spread betting is not regulated in many countries, which explains this.
- Spread betting vs Forex: as with the previous case, spread betting differs from Forex trading. Betting is first and foremost a wager, so it carries no tax or commissions on positions. Above all, you can spread bet on many market assets. With Forex trading, by contrast, you can only trade currency pairs, and you are not exempt from commissions.
- Spread betting vs day trading: these two concepts have nothing in common. Spread betting is a wager that can be seen as a form of investing, while day trading is an investment strategy limited to a single day. You can even use day trading to spread bet: it simply means betting on asset prices and closing your positions the same day.
Tips
If you have grasped the basic principle of spread betting, here are a few tips before we continue. Before doing anything, find out as much as you can about the subject. Next, choose a quality platform to invest from. Most importantly, be very careful about which assets you bet on. Always weigh the risks before making a decision, as an error of judgment can cost you money in spread betting. |
5 Rules for Getting Started
If you are ready to start spread betting, here are some very useful tips:
- Set normal stop loss orders that are not too tight. Otherwise, the order is likely to trigger unexpectedly and close your position.
- Follow the trend: careful! Don’t try to be a market oracle. You cannot predict a reversal when the trend says otherwise. Stay objective and follow your indicators.
- Use the news to help you decide: here is how. When news breaks about a particular security, the market reacts immediately, creating an upward or downward price move. You can use this information to know exactly when the price will move and open a position. When things settle down, you can also bet on the asset returning to its normal price.
- Specialize: there is no point chasing every opportunity. It is better to select specific assets, analyze them and know their movements inside out. That way, you can easily anticipate price changes.
- Diversify your positions: specialize, but not in a single asset type. Given how volatile products are, it is always good to have another source of profit. As in football betting, bet on at least two outcomes (at least 2 different assets).
Building a Plan for Success
Here is the plan to follow to succeed in spread betting:
- Training
- Joining a quality broker
- Starting with a demo account
- Choosing an ideal, simple trading strategy for beginners (scalping, day trading, swing trading).
- Choosing the right indicators
- Investing wisely
5 Little-Known Spread Betting Tips
Here are some extra tips you will rarely find on a spread betting forum. They are simple ideas that many investors overlook, mostly things to avoid.
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How to Get Good at Spread Betting
In this guide, we have given you a plan and crucial tips for becoming a good market spread bettor. The key points that keep coming back are choosing the right broker, training, and using forecasting tools. If you apply these 3 tips, you will be a good spread bettor, and perhaps one of the best.
The Right Mindset for Spread Betting Success
Mentally, succeeding at this kind of investing requires a strong analytical mind. So use your brain and study every possibility. Approaching it with the same mindset as a sports bettor can help you succeed.
You also need to be mentally prepared for tough situations. Asset prices never stay stable for long, so prepare for the worst-case scenario. Stay calm and don’t panic. That is how you win at spread betting.
How Could Spread Betting Change My Life?
Many investors have already become spread bettors. You may be wondering what impact this way of investing would have on your life if you followed the same path. Here is our answer.
The fact is that spread betting can earn you a lot of money without having to pay full price. Since you do not actually own the asset, you have several advantages, including leverage, which lets you amplify the power of your investment.
In addition, assets you cannot buy directly (because they are too expensive) become more accessible. With spread betting, you can speculate on the biggest stocks on the market, which can radically change your life and grow your wealth.
How to Get Started
Convinced by the appeal of spread betting? Then you can start investing right away. To begin spread betting, simply sign up with a broker that offers this service. But be careful which platform you choose. As a beginner, always choose a trustworthy broker that is easy to get started with and, if possible, offers a demo account.
Which Broker Should Beginners Use?
Brokers are intermediaries between you and the market. Through them, you can invest in any asset available on the financial markets. The problem is that not all brokers offer the same features. Some only offer traditional trading, while others let you bet on market movements; the latter are called spread betting brokers. This is the type of platform to look for if you are a beginner.
Online, brokers such as AvaTrade, eToro and Vantage are the most reliable. These sites usually offer a user-friendly platform, a demo account and training resources.
Our Top 6 Brokers
Open a Trading Account With Vantage in a Few Steps
Go to Vantage and Click “Live Account”
Fill in the Vantage Registration Form and Click “Open Live Account”
Enter Your Personal Details on Vantage and Click “Next”
Share Some Information About Your Financial Situation With Vantage and Click “Next”
Set Up Your Vantage Trading Account (MT4 or MT5, account type – Standard STP to get the bonus, account base currency) and Click “Next”
Confirm Your Identity and Place of Residence by Uploading 2 Documents to Vantage and Click “Next”
Fund Your Account to Receive Your Bonus and Start Trading With Vantage
Who to Trade With: Choosing the Right Broker
Choosing a broker is an important step in getting into spread betting, because a good broker makes investing easier. The best spread betting brokers give you access to training on the subject, so you gain experience and move easily from beginner to professional.
Good brokers also let you practice with a demo account. Most importantly, they offer very attractive leverage on all instruments available for spread betting. We have already suggested some brokers above that may meet your needs. Don’t hesitate to try them to start investing.
Broker | Strengths | Client Reviews | |
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| ★★★★☆ 4.5/5 | Read Review |
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| ★★★★☆ 4/5 | Read Review |
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| ★★★☆☆ 3.5/5 | Read Review |
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| ★★★☆☆ 3.5/5 | Read Review |
Which Platform for Beginners?
You can spread bet on asset prices using the same trading platforms brokers provide. So if you have already chosen your preferred broker, you can use its default platform to start investing. For beginners, we recommend platforms such as:
- MetaTrader 4 spread betting
- MetaTrader 5 spread betting
MT4 is the most popular trading platform in the world. It is simple to use, which is an advantage for beginners. Spread betting on MT5 offers an enhanced service with advanced features that you can use once you know the subject well. These platforms are available at various brokers.
Step by Step: How to Do It
Here is how to get started in spread betting, step by step:
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How to Open and Close an Order
In practical terms, spread betting means opening and closing your orders or positions. Opening marks the start of your bet and closing marks the end. Here is how to do it, step by step:
- Suppose you want to bet on the price of a Forex asset, for example the EUR/USD pair.
- Go to your broker and select this asset.
- To place the bet, choose to buy (if you are betting on a rise) or sell (if you are betting on a fall).
- Set your stop losses and other bet parameters.
- Set the size of your order and confirm the trade.
That’s it: you have opened a bet. To close it, simply click the tab representing your order in the broker’s interface.
How to Learn Spread Betting
We can’t say it enough: training in financial investing is very important, whatever the type. So we recommend learning how to bet on market movements. You have several ways to do so. By choosing the right broker, you can get free courses on the subject, with illustrative videos and even webinars.
The best way to learn is to practice. You can open a demo account with a broker that offers one. That way, you will discover every aspect of the concept, such as how to place a bearish or bullish order.
There are also some very interesting books on betting on market movements. Read them to build your trading knowledge and performance.
Spread Betting Basics and Jargon
To help you understand what spread betting involves in practice, here are some key terms from spread betting jargon:
- Stake size: the amount you win or lose for each point the price moves.
- Bid: the price at which you can sell the asset. It is always lower than the ask price.
- Buy: in spread betting, buying is called an up bet. It means you are taking a bullish position on a security.
- Cable: the exchange rate between the British pound and the US dollar.
- Spot price: the actual current market price of a product.
- Closing: the end of a bet, resulting in a profit or a loss.
- Controlled-risk bet: any bet whose losses are limited by a stop order.
- Currency pair: a pair of two fiat currencies.
- Daily bet: a bet that ends within 24 hours at most.
- Down bet: the opposite of an up bet. It means “selling”, i.e. betting that the product’s price will fall.
- Downtrend: when forecasts point to a fall in the share price.
There are many more common spread betting terms. For the full list of expressions and their definitions, check online glossaries.
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There are several kinds of spread betting training. Here are the different types of courses available:
- Video training: online spread betting courses recorded as tutorials. They help you understand the principles of this form of investing visually.
- Written courses: the written version of this learning model. This type of training covers specific case studies, so when the same situation comes up in your trading, you already know what to do.
- Interactive courses: here, you can talk with professional spread bettors. They explain every aspect of the subject, and you ask questions to understand better.
- Hands-on training: as the name suggests, this type of learning means applying the instructions you are given. It is very similar to using a demo trading account.
What Gains and Losses Can You Expect?
Betting on the movements of a market product is an opportunity to make money. If your prediction is right, you can make an excellent profit. Earlier in this guide, we took an example where you take a bearish position on a security. When the prediction came true, we saw that the investor (you) earned $960 in a single trade, based on our example.
We also showed that if your prediction is wrong, you can lose just as much: the example shows a loss of $1,200.
Spread betting is therefore a double-edged sword. However, there is no set level of gain or loss. It all depends on the asset’s buy/sell price, your stake and, of course, the accuracy of your prediction. The quality of your broker can also affect how profitable your bets are.
Spread Betting: When Is the Best Time?
You may be wondering when in your life is the ideal time to start spread betting. Strike while the iron is hot: you can start right after finishing this article. Investing in the markets does not necessarily require a huge commitment.
You can do it alongside other activities. There is no need to wait for retirement or to devote yourself entirely to spread betting. You do, however, need to find some time to monitor your investments and analyze the market. So there is no specific period for betting on price movements.
What is the best time of day to bet? That is an excellent question, as you need to know the most favorable hours. Our answer is to be active during market opening hours. At certain times of the day, a flow of information circulates online, such as statistics and forecasts. You should be betting at those moments, as it is your chance to predict market moves and use the signals to trade before things change.
Full-Time Job or Hobby?
That is up to you. You can make spread betting your profession: your working day starts when your market opens, you spend the whole day betting on where share prices will go, and you stop only when the market closes. The next day, the same process repeats and becomes your daily routine. You would then be a full-time spread bettor.
You can also take a more relaxed approach, betting only in your spare time. After a day at work or during a break, you can place one or two trades and see what happens. In that case, it is simply a hobby.
How Much Money Do You Need to Start?
We cannot give a precise answer, as the budget depends on your goals and the broker you choose. However, we know that most spread betting brokers require a minimum deposit of between €100 and €500. Taking transaction costs into account, this gives you an idea of the budget to plan for.
What Success Rate Can Beginners Expect?
We won’t lie to you: the success rate for beginners is not high. In fact, it is very hard to pin down, as your success depends above all on your strategy and spending. However, we know that more than 75% of market investors lose money, leaving barely 25% of winning investors. We apply these rates to spread betting, but that does not mean it is hard to succeed. On the contrary, you just need to make the right decisions at the right time to raise your personal success rate. The only way to find out how successful you can be is to get started now by opening an account with a spread betting broker.
Pros and Cons
Betting on market movements is clearly a rather positive venture, as shown by the many traders who have already joined spread betting brokers. However, there are also risks not to overlook. Here are the strengths and weaknesses of this form of investing:
Pros | Cons |
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Spread Betting: Which Strategy for Beginners?
Among trading strategies, one of the best suited to beginners is scalping. Using scalping for spread betting means taking a bearish or bullish position on an asset over a very short time frame: not a day or an hour, but a few seconds or minutes. Scalping is a good beginner strategy because it helps minimize risk. However, to succeed with it, you need good-quality forecasts of market movements.
Which Trading Indicators Should Beginners Use?
To succeed at spread betting, you need to be able to anticipate market movements. How? By equipping yourself with the best trading indicators available. We have selected some of the best indicators currently on the market:
- Moving average
- Exponential moving average
- Moving average convergence divergence (MACD)
- Bollinger Bands
- Fractals
- Fibonacci retracement
Each of these tools is excellent and ideal for beginners. If you want to use the best indicator, simply test each one to find the one that suits you best.
Which Trading Style Suits Beginners?
At first, it is best not to adopt overly complex trading styles for spread betting arbitrage. We think it is more sensible to start with swing trading, which means opening positions and holding them for only a few days in the hope that the price moves in your favor.
As a second choice, you can opt for day trading, where you never hold positions for more than a day.
These two tactics are perfect when you have just entered the world of spread betting. Later on, you can consider opening long-term positions, but you will need enough experience to do so, or you risk losing money.
Opinions on Spread Betting
Opinions on spread betting vary depending on culture and religion. The position of Islam, and therefore of Muslim investors, on this activity is clear: under Islamic law, betting on any market security is a financial form of “qimār”.
Qimār is an Arabic term referring to games of chance, and all forms of gambling are forbidden under Islamic law. Hence the term “spread betting haram”, haram meaning anything not compliant with Islamic law.
In other words, most practicing Muslim investors do not take part in this type of trading. In their view, spread betting cannot be considered halal (compliant with Islamic law).
We nevertheless looked at other users’ views on the subject, focusing on comments from clients who have used IG Markets for spread betting.
Clients | Client Review | Client Rating for Spread Betting With This Broker |
|---|---|---|
Review by DISTRIBUTION DUTCHESNE | Highly recommended! A dynamic and truly PROFESSIONAL team serving its clients! | ★★★★★ 5/5 |
Spread betting review by Mounir Elytrading | Personally, everything I looked for at IG I found: support and follow-up from day one, training webinars for all levels, very sound analysis of the different assets, regular live sessions especially during high-impact economic events… and all of that matters enormously for a beginner on the financial markets like me | ★☆☆☆☆ 1/5 |
Review by Iratni Mohammed | Very good quality of service and support for investors. | ★★★★★ 5/5 |
Spread betting review by ericnico2 | Recently switched to live. I move between the 2 platforms, IG and PRT (v10 not as good as the v11 demo I had been using for 6 months). Some indicators don’t give the same information (pivot points, for example). The Academy courses and IG Market Live are good For now, adapting to the changes | ★★★★☆ 4/5 |
| Spread betting opinion by torra | IG account opened 10 days ago, linked to the ProRealTime platform. Used with a PRT robot. | ★★★★★ 5/5 |
Review by Laurent D | I have tried many platforms over the past few years, from the cheapest to the most premium, and IG is by far the best value for money. Very pleasant, intuitive and smooth. Very responsive for scalping, with order placement and the ability to close positions directly on the chart. Highly recommended. | ★★★★★ 5/5 |
Review by Kenji Supremacy | IG is a very comprehensive trading platform. You can trade almost anything, which gives you plenty of choice. Plus, the strategy based on risk management is emphasized 🙂 | ★★★★★ 5/5 |
Review by Jimmy Flandrina | We have been working together for 8 years now. I have seen several brokers, but for me you are by far the best, both for client relations and the platform itself. | ★★★★★ 5/5 |
Review by Laurence AIME | Easy to use | ★★★★★ 5/5 |
Opinion by Sylvain P. | The best for serious investors. Fixed spreads, guaranteed stops available, etc. In short, the number 1 choice for traders who want to make money. | ★★★★★ 5/5 |
Key Takeaways
Remember that spread betting means taking bullish or bearish positions on assets. It is a profitable, low-cost form of investing, as you do not own the underlying asset. However, you can lose money if you don’t make the right decisions or don’t work with the best spread betting broker. So we recommend paying attention to our selection of the best spread betting brokers, then applying our tips and tricks to maximize your chances of profit.
Need advice on choosing the best spread betting broker for beginners? Leave us a comment and we will help you find the best broker for you!
References
- High-risk trading! – AMF France
What do you think of spread betting? Share your experience and leave us a comment!